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Verve energy drink company found to be pyramid scheme

Kaylee Andrews, Production Designer

Kaylee Andrews, Production Designer

by Jacob Sisneros, Staff Writer

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Multi-level marketing company Vemma Nutrition was recently shut down by the Federal Trade Commission for operating as a pyramid scheme.

The company is one of many that have targeted college students to make a profit.

Vemma got its start in Tempe, Arizona, and began recruiting students at Arizona State to sell its energy drink product Verve.

The product took a foothold at ASU and quickly spread to other universities around the country, including San Diego State.

Bernhard Schroeder, director of the Lavin Entrepreneurship Center at SDSU, said multi-level marketing companies target colleges specifically because they are looking for inexpensive sales talent.

Vemma’s business plan involved recruiting young people to make an initial investment of around $500 for an affiliate pack that included the company’s energy drink Verve. The affiliates were then supposed to distribute the energy drink to their friends and try to recruit them to join as affiliates.

The FTC alleged Vemma was operating as a pyramid scheme because it rewarded affiliates for recruiting other participants rather than selling products.

George Belch, chair of the marketing department at SDSU, said students should be extremely cautious when deciding whether to get involved with multi-level marketing companies.

“These companies will set up shop,” Belch said. “And just as fast as they set up a company, they will take it down. They’re really difficult (for the FTC) to keep up with so you’re just simply best off to avoid them.”

Vemma earned more than $200 million annually in 2013 and 2014, and the FTC alleged it made most of its money from the buy-in of new affiliates.

“Those kinds of companies know they’re going to be taken out,” Schroeder said. “It’s a question of when, so they try to make as much money and move as fast as they can.”

More than 97 percent of affiliates earned $12,000 or less a year in 2013, according to data provided by Vemma.

“The fact is there is never an easy way to make money,” Belch said.

Vemma’s websites, social media and marketing materials used luxury items as a way to lure college students, according to an FTC complaint filed against Vemma on Aug. 17.

Belch said if a company makes exorbitant claims about all the money people will make by joining, that should be a warning sign to students to avoid the company.

Schroeder said he doesn’t think all multi-level marketing companies are bad actors. Some students in the Entrepreneur Society tell him they have built sales skills by selling their products.

However, he urges students to take jobs in which they will be mentored.

“You want to be acquiring skill sets in college. You don’t necessarily want to be acquiring money,” Schroeder said. “Go find those types of companies that align with your passion where you can acquire your skill sets.”

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3 Comments

3 Responses to “Verve energy drink company found to be pyramid scheme”

  1. Tony Hughes on October 14th, 2015 7:46 pm

    The onslaught of bad publicity against the legitimate profession of network marketing is sickening to me.

    I have a degree in Business Management with an emphasis on marketing from Brigham Young University. The first 17 years of my life were devoted to working with several brand name companies in the corporate America space. Clairol, Revlon & Iams.

    I found the Network Marketing profession (and yes, I consider it to be a profession and not an industry) in 1995. I’ve always been a free spirited entrepreneur and I found my 17 years in the corporate world to be far too restrictive, far too limiting and far too financially subpar.

    I struggled in Network Marketing for many years like most do when they venture into the world of entrepreneurship. But, eventually I began to apply the skills I learned from my part-time profession and over time began to enjoy tremendous financial success.

    I was able to quit my full time job which took me away from my wife and five children 70+ hours a week for 17 years! I was able time home and be with my family and was able to on to earn millions of dollars from the Network Marketing industry.

    The FTC vs Amway case of 1979 is the biggest piece of case law precedent for the profession of Network Marketing. The rules for Amway and all other MLM companies were clearly defined in that case.

    What really irritates me more than the dog piling that is happening right to the profession that I am so profoundly passionate about is the anti-entrepreneurship, anti-small business tactics of our federal regulators!

    Since when did it become acceptable for the United States government to “ambush” small business owners by freezing their assets and completely prohibiting them from doing business without calling a meeting first to express their concerns? Why shut business down, go through expensive court battles (at tax payer expense) before even picking up the telephone to the CEO or the corporate counsel to discuss any and all concerns they have about how their business enterprise may be hurting citizens rather than completely gutting the operation which provides jobs to families and income opportunity to scores of entrepreneurial dreamers?

    Our government should truly be ashamed of themselves specifically as it relates to Vemma and I am not now nor have I ever been affiliated with that company. This is so anti-small business! It smacks of Gestapo tactics and I think our government ACN and must a better way of solving matters like this just because some special interest group (tina.org) has a beef with this company or that!

    I can see why a professor at at college or university or the entire academic institution might feel threatened by those choosing not to attend college because it threatens their jobs! Much like baptist preachers will spend many Sunday sermons preaching against Mormonism because it threatens their tithes that go to feed their families, etc.

    We live in the United States of America not in Hitler’s Germany! We must absolutely go after coma pines where they are conducting business that is obviously hurting those who can’t defend themselves like the elderly or children, etc. but an 18 year old person is an adult and they have a brain and they have freedom to make choices. I don’t agree that hound people should necessarily be the target for a marketing campaign but then again what does the US military do to our young people.

    The arguments made in this article by my these “so called” academicians is ludicrous! The arguments being made that because a company trains you to recruit a network of distributors makes it an “illegal pyramid scheme” is preposterous! If that is the law then shut down all insurance companies, all real estate companies, all military institutions, all retail stores, in fact, just shit down any company or institution that pays employees to find people to come to work for them or represent them, etc.

    This is shear madness and it has got to stop!!!

    [Reply]

    Laura Reply:

    I love your comments, this are some idiots writting and this New is SO out of date…

    [Reply]

  2. Len Clements on October 15th, 2015 12:20 pm

    I’m assuming, Jacob, you are a student attempting to acquire the “skill set” to be a professional journalist. That includes a due-diligence of the topic, and the vetting of information received from your sources. Yet, other than reading the FTC’s Complaint, and performing two interviews from outside, biased sources, you appear to have done no other research on this topic at all.

    In fact, considering Vemma’s closure and asset freeze was rescinded by court Order over three weeks ago, you apparently didn’t even bother to Google “Vemma”, or visit their website.

    The FTC does not have the ability, as you claim, to “shut down” a company, MLM or otherwise. Only a court of law can do that. Granted the FTC did convince a judge to initially close Vemma, and to appoint a receiver and freeze their assets, but that was following an “ex parte” hearing. That means one where the FTC gets to make their case, after their one year secret investigation, and the defendants are not even aware the hearing is taking place. However, after another hearing (allowing Vemma only 18 days to prepare a defense, with frozen assets), the judge ruled the receiver to be removed (in lieu of a “monitor”), control of the company to be returned to Vemma, all assets to be unfrozen, and allowed Vemma to reopen, as an MLM company (under certain restrictions related to how they promote the business, and qualify reps for income). And Vemma is open, as an MLM company, right now.

    Furthermore, the claims of Mr. Schroeder and Mr. Belch exhibit a substantial ignorance of the topic on which they were asked to opine. In fact, few other MLMs specifically target college students, and the sales force in any MLM program, from any source, are as “inexpensive” as are college students. Also, the assertions that “…just as fast as they set up a company, they will take it down” and “Those kinds of companies know they’re going to be taken out. It’s a question of when, so they try to make as much money and move as fast as they can” are nonsensical considering Vemma is 11 years old (and counting), and is one of over 80 MLM companies older than 10 years. In fact, there are 8 MLM companies who have been in business for over 40 years.

    Finally (and only due to comment space limitations), the sidebar suggestions that you’re probably involved in a pyramid scheme if, “the company asks you to recruit others”, and “the company requires you to buy from them” is not just inaccurate, it’s irresponsible. Based on these criteria, which do not exist in any state or federal regulatory guidelines, you’ve just indicted all eight of those 40+ year old MLMs, as well as AVON, Fuller Brush, Discovery Toys and Tupperware.

    Of all people, Jacob, you should appreciate the value of doing your homework.

    [Reply]

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